I am sitting typing this at the airport and the TV news screen in front of me is providing a profile of the new Italian Prime Minister and claiming he is well-equipped to rescue Italy. I read a similar argument in a Bloomberg Editorial this morning (November 16, 2011) – Technocrats Step In Where Political Leaders Fear to Tread. The rise of the economic technocrats is being hailed as a model to avoid complicating factors like worrying what the voters might think or want or do. We know best so shut up and take the medicine. There are two problems with this. First, it is undemocratic. Second, even if you are not worried about that, the technology these technocrats bring to bear is the same box of tricks that created the problem in the first place. Somehow they think if they just scorch these economies into submission, the market will finally start working again. Quite apart from their flawed technology, the reality is that the private sector will not be in a position for some years to drive growth strongly again on the back of a credit binge. Public deficits will have to persist. The very anathema of these economic technocrats. That is now emerging as the problem, quite apart from whether you think the people should get a say in who they elect.
I thought the Bloomberg Editorial noted in the introduction was somewhat extraordinary. Apparently, leaders who are immune from political influences are “Europe’s best hope”.
The article was about the demise of four elected European premiers in the last year with a suggestion that a fifth might be added when Spain goes to the polls on November 20. Apparently, these democratically-elected leaders:
… lost their jobs because they failed to fix their countries’ mounting debt problems.
The take-away: When leaders fail to address urgent fiscal matters, the capital markets will punish — and ultimately remove — them by making the cost of financing debt prohibitively high.
That is not the “take-away” that I would have concluded. Here is my take-away in as many words: Europe is now fundamentally undemocratic and the proponents of free markets are really setting up totalitarian regimes run by a cabal (EU, ECB and the IMF) who have lost touch with the needs of the citizens.
The other angle that the Editorial advances is that these elected leaders have been replaced by unelected “economic technocrats with no particular party loyalty”. They might have added – with no particular connection to the people they are now ruling.
These “economic technocrats” see things through a lens that is coloured by relatively meaningless financial ratios and extraordinary assumptions about human behaviour and needs. Their lens is built on a patently false set of propositions about the way economies operate which in the EMU’s case means they cannot see the true nature of the problem.
They fail to see that the problem is their theoretical approach – which pushed the economy into this crisis and is responsible for its enduring nature. They know that the imposition of this model will benefit some at the expense of the majority. The only way they that they got away with it in the period leading up to the crisis was because they were able to maintain economic growth via credit-fuelled private consumption (in the main).
That option is not going to work in the period ahead. These one-trick ponies are trying it again though by imposing public austerity which relies on the private sector, ultimately spending more than it earns to maintain growth. The crisis was caused by the excessive private debt yet their solution is to rely on that again to get out of the recession. It won’t work.
The Bloomberg Editorial claims that these economic technocrats will be able to “say no … [which] … will come in handy”. In this case, it is the people of their respective countries who will be given the “bird”.
More specifically, it says that, for example, the newly installed Italian Prime Minister Mario Monti will take on the unions to free the labour market and also make cuts to the “overburdened pension system”.
The only reason that the Italian pension system is “overburdened” is because the Italian government surrendered its capacity to issue its own currency. All spending becomes a “burden” when a nation operates with a foreign currency – as all the EMU member states do.
That is, all spending must be “funded” and that means taxation and debt-issuance are essential. If the Italian government still enjoyed currency sovereignty then it could always pay the pensions on time.
If one was to do a thorough cost-benefit analysis of each nation’s decision to join the Eurozone I am convinced that in the majority of cases, the conclusion would be a negative BC ratio – that is, they are worse off from joining.
All these economic technocrats are likely to do is make the costs even higher while the benefits remain somewhat obscure.
The Bloomberg Editorial then claims that the installation of these economic technocrats, the terminology generates images of a military-style junta “installing” a new regime, carries a serious message for the United States:
One hopes these shifts have not been lost on President Barack Obama and the U.S. Congress. The U.S. certainly doesn’t face anything like the dire situations confronting Greece and Italy. Still, it would be foolhardy to assume the U.S. can’t be similarly manhandled by the capital markets, even with 10-year Treasury yields at a low 2.04 percent.
Failure by the congressional supercommittee, say, to come up with $1.2 trillion in spending cuts and revenue increases over 10 years, thereby triggering larger automatic cuts, could easily open a new chapter of vulnerability. The deep cuts triggered by the failure would certainly mark the apogee of political dysfunction.
The only reason the US economy is still showing signs of life – for example, some good news yesterday on retail sales – is because the fiscal support hasn’t been seriously withdrawn yet. It is taken some time for the dysfunctional polity in the US to get to the austerity phase – and thanks be for that incompetence.
The US doesn’t face any situation remotely like that of Greece and Italy because it issues its own currency and if worse comes to worse it will introduce more fiscal expansion and ignore the private bond markets. It has the capacity to deal the bond markets out completely.
Please read my blog – Who is in charge? – for more discussion on this point.
If the US Congress really does try to replicate what is happening in Europe at present and “come up with $1.2 trillion in spending cuts and revenue increases over 10 years” then the performance of the US economy will likely mirror that of the now moribund and worsening Eurozone.
Note that if the US government continues to support growth with appropriate fiscal policy then tax revenue will rise anyway and narrow the budget deficit as a result of the automatic stabilisers. Spending cuts at a time when private demand is not particularly strong (and incapable of picking up to fill the gap) and export markets are looking worse for wear will likely lead to a decline in tax revenue.
The Bloomberg Editorial finishes like this:
Americans are fond of deriding European technocrats. Yet it’s the technocrats — a cadre of economists with international experience — who have accepted the challenge of stabilizing the continent, putting aside personal or political interest. They are Europe’s best hope.
There are two perspectives here: (a) the installation of these “economic technocrats” violates all notions of democracy; and (b) even if you weren’t worried about that point the fact is that these “dictators” who are meagre puppets of the Troika – the Euro cabal – do not have the correct technology to fix the problem.
So the citizens of Europe not only lose their essential freedom but they endure worsening economic conditions (on average).
I had a very interesting lunch yesterday at the Monash University European Centre. I am soon to join the centre as a member. More details later. The discussion included the demise of democracy in Europe.
One strand was how the Germans “lost the War” but then worked out how to “win” it back by using economic rather than military weapons. The EMU is their “economic” war on the rest of Europe.
The other strand of the conversation related exactly to the point that the Bloomberg Editorial covers – the installation of unelected leaders who are driven by the desire to placate the “markets”.
If I was a “leader” I would ask myself: What is the purpose of government? I would answer along the lines of to advance public purpose, which includes:
1. Making sure people have jobs and good incomes.
2. Ensuring that all claimants to the real income that the economy produces get an equitable share.
3. Ensuring private market-driven behaviour doesn’t undermine those goals.
4. A raft of other social and environmental goals …
The last thing that would concern me was whether the private bond markets were going to buy public debt because I would know that I could create the legislative environment where it didn’t matter.
In the EMU case, that would mean instructing the ECB to act consistently in the public interest. That sort of reasoning is not problematic when we are dealing with a true federation (such as Australia or the US). But the political and cultural divides that exist in Europe mean that it would be hard for the ECB to continually bail out one nation which was acting in contradistinction to the aspirations of other nations.
The ECB technically could fund all the deficits. But I accept there is a moral hazard issue here because of the vast differences in history and culture within the member states of Europe.
In that sense, my conclusion if I was leader in Europe would be that the costs of surrendering my currency sovereignty and adopting a foreign currency (the Euro) and having a central bank that cannot really act as a central bank in a true federation would exceed the benefits. Leadership would then manifest as planning and executing an exit from the monetary union.
But the point is that the elevation of these technocrats as puppets of the Troika has undermined democracy in Europe. But that has been going on for a while as the neo-liberal tentacles have spread.
The pretence at democracy is no more obvious than the pitiful attempts to ratify the Treaty establishing a Constitution for Europe. The plan was to replace the “existing European Union treaties with a single text”. The ratification process began, by which the individual nations would have to endorse the proposition, via a mix of parliamentary votes and/or national referendums.
Several parliaments supported the vote and two referendums passed – Spain and Luxembourg.
But then the wheels fell off.
Things became interesting in May 2005 when the French voted. The French case is a good example of what has happened in Europe as the neo-liberal paradigm has become dominant. The blurring of party boundaries became evident by the fact that the socialists (Holland) and the conservatives (Sarkozy) urged the people to vote YES for the proposal.
The cover of the Paris Match (a weekly down market French Magazine) on March 17, 2005 summed it up really. I saved it at the time because it exemplified what has gone wrong with the political debate. The left and right have merged in key issues because they have become captured by the neo-liberal elites. Once you sign up to the “self-regulating free market” myth then there is not much room to move on social or economic policy.
Here is the cover:
The title – “Hollande et Sarkozy face aux française en colère” translates to “Hollande and Sarkozy face the anger of the French” and referred to the fact that both sides of politics were supporting a yes vote in the The French European Constitution referendum, 2005 which was the first cab off the rank on what the Euro bosses thought would be a cakewalk to ratify their grand plan to take over Europe.
The two politicians – looking like bankers or corporate bosses – both agreeing on a proposal to ratify the further erosion of democracy in Europe.
The question asked at the referendum was:
Approuvez-vous le projet de loi qui autorise la ratification du traité établissant une Constitution pour l’Europe?
That is, “Do you approve the bill authorising the ratification of the treaty establishing a Constitution for Europe?”
The French voted on May 29, 2005 and convincingly rejected the proposal.
The results of the referendum shook the elites – 54.67 per cent of French voters supported the NO vote with 45.33 per cent voting YES (2.52 per cent of the vote was declared blank or invalid). So a categorical rejection of the proposition
Three days later (June 1, 2005) the rejection was even more emphatic in The Netherlands with 61.54 per cent saying NO and only 38.46 per cent saying YES.
Those two rejections were more than the Euro cabal could take and they quickly revised their strategy and cancelled the democratic ratification process to buy some time. This was expressed in the words of the French President Jacques Chirac:
I hope we can take a pause for reflection which will allow us to regain the confidence of the citizens.
What do you think happened? The cabal created the Action Committee for European Democracy – the so-called Amato Group which was full of senior and pro-Euro politicians (and named after the former Italian Prime Minister Guiliano Amato).
It had to work out how to get around the democratic processes. They met on September 30, 2006 in Rome. After a typically convoluted process they agreed that the referendum path was not in the interests of the elite and, instead, they recommended the creation of a new constitution for the EU which became the – The Treaty of Lisbon – and was signed by the leaders on December 13, 2007.
I have been studying that constitution recently for a book I am working on and you can see why the elites were so keen to push it through – with or without the consent of the people.
You have to read it carefully and read-between-the-lines but it is clear that the intent is to further the neo-liberal dismantling of the welfare state – to undermine public employment and public service. It talks about “free and undistorted” competitive markets (see Article I-3-2) which is code for further deregulation and the transfer of more power to the corporate and financial sector.
Exactly the trend that has led to this crisis.
Part III of the constitution prohibited restrictions on free enterprise and capital mobility.
All public service activities (which were expressed in the neo-liberal code as “services of general economic interest” were to made competitive by forced tendering. National governments were to be prohibited from providing assistance to specific sectors because that assistance might undermine competition.
The major aspects of the Maastricht Treaty – the creation of the independent central bank (ECB) and the fiscal rules embodied in the Stability and Growth Pact (SGP) were recognised.
The intent of the newly proposed constitution was clearly neo-liberal. Corporations, particularly financial market institutions, were elevated in importance (and given new freedoms) and member states could do little about it. The constitutional characteristics made it very difficult for change to occur once ratified.
The fact that the left and the right largely supported the process and the wording indicates how far the neo-liberal paradigm has penetrated into the political process.
The installation of these economic technocrats reminded me of when I was a philosophy student. As all students in this discipline, I studied Plato’s Republic which outlined the proposition that the best hope for the world would be to install Philosopher Kings – see Book VI The Philosophy of Government.
These unelected kings would effectively operate as a benign oligarchy and leave people to pursue their trivial interests without needing to be involved in the grand affairs of the state.
Plato opens Book VI by outlining the virtues of the Philosophers:
Having determined that the many have no knowledge of true being, and have no clear patterns in their minds of justice, beauty, truth, and that philosophers have such patterns, we have now to ask whether they or the many shall be rulers in our State. But who can doubt that philosophers should be chosen, if they have the other qualities which are required in a ruler? For they are lovers of the knowledge of the eternal and of all truth; they are haters of falsehood; their meaner desires are absorbed in the interests of knowledge; they are spectators of all time and all existence; and in the magnificence of their contemplation the life of man is as nothing to them, nor is death fearful. Also they are of a social, gracious disposition, equally free from cowardice and arrogance. They learn and remember easily; they have harmonious, well-regulated minds; truth flows to them sweetly by nature. Can the god of Jealousy himself find any fault with such an assemblage of good qualities?
At that point, Adeimantus who is listening to Socrates says:
No man can answer you, Socrates; but every man feels that this is owing to his own deficiency in argument. He is driven from one position to another, until he has nothing more to say, just as an unskilful player at draughts is reduced to his last move by a more skilled opponent. And yet all the time he may be right. He may know, in this very instance, that those who make philosophy the business of their lives, generally turn out rogues if they are bad men, and fools if they are good. What do you say?’ I should say that he is quite right. ‘Then how is such an admission reconcileable with the doctrine that philosophers should be kings?’
Then Plato introduces the famous ship captain allegory.
Conceive the captain of a ship, taller by a head and shoulders than any of the crew, yet a little deaf, a little blind, and rather ignorant of the seaman’s art. The sailors want to steer, although they know nothing of the art; and they have a theory that it cannot be learned. If the helm is refused them, they drug the captain’s posset, bind him hand and foot, and take possession of the ship. He who joins in the mutiny is termed a good pilot and what not; they have no conception that the true pilot must observe the winds and the stars, and must be their master, whether they like it or not;— such an one would be called by them fool, prater, star-gazer. This is my parable; which I will beg you to interpret for me to those gentlemen who ask why the philosopher has such an evil name, and to explain to them that not he, but those who will not use him, are to blame for his uselessness. The philosopher should not beg of mankind to be put in authority over them. The wise man should not seek the rich, as the proverb bids, but every man, whether rich or poor, must knock at the door of the physician when he has need of him. Now the pilot is the philosopher — he whom in the parable they call star-gazer, and the mutinous sailors are the mob of politicians by whom he is rendered useless. Not that these are the worst enemies of philosophy, who is far more dishonoured by her own professing sons when they are corrupted by the world. Need I recall the original image of the philosopher? Did we not say of him just now, that he loved truth and hated falsehood, and that he could not rest in the multiplicity of phenomena, but was led by a sympathy in his own nature to the contemplation of the absolute? All the virtues as well as truth, who is the leader of them, took up their abode in his soul. But as you were observing, if we turn aside to view the reality, we see that the persons who were thus described, with the exception of a small and useless class, are utter rogues.
While at the time (and now) I considered the idea of the philosopher king to be anti democratic and therefore to be rejected – it is clear that Plato considered this to be a benign dictatorship. It also solves some of the problems of democracies that ignorance gets a vote.
But are these economic technocrats in the same mould as the philosophers? Clearly not. They are not lovers of wisdom. Plato considered his philosophers to be “absorbed in the love of wisdom, which is the love of truth”.
The economic technocrats are perpetrators and defenders of untruth and a lack of wisdom. Evidential reality escapes them as they distort the reality before them to fit the theoretical structures they have created which are continually violated by the developments in the real world and a close understanding of how things actually operate in the real world.
They do not guard the utopia. They undermine it.
The other thing I thought about in relation to this was the reaction by the modern critics of Plato.
Austrian Karl Popper devoted volume I of his two-volume tome – The Open Society and Its Enemies – to an attack on Plato, particularly Chapter 8 The Philosopher King.
The book is an attack on collectives which is linked to totalitarianism.
Popper is a darling of the free enterprise set because of his trenchant attacks on Marx. He claims that Plato’s popularity was a stimulus to totalitarian movements in Europe in the C20th. I could talk about whether Popper had actually interpreted Plato correctly but that is another issue beyond this blog.
I don’t have the time today to comment any further but the irony is this.
Mainstream economists generally like Popper because they see him aligned with free markets. But the neo-liberal paradigm which is the practical extension of mainstream economics – deregulation etc – is not about creating free markets. It is about skewing the balance of power that dominates all human interactions – including those that economists think are market-based (exchanges).
But further, while the elites hide behind free market rhetoric while they undermine the capacity of the workers to enjoy guaranteed work and stable incomes and satisfactory retirements (you should read the wording in the European constitution on rights), yet support the neo-liberal redistribution of economic power, they also hide behind democratic rhetoric but operate as an undisciplined oligarchy.
The recent demise of the Greek prime minister who dared to suggest the people might get a vote demonstrated, if there was any doubt, just how venal the cabal is.
The installation of these economic technocrats is just another part of this elite jigsaw.
But back in the real world, I saw a news item overnight which said that Korean exports to the EU have fallen significantly. They have delined by 20.3 per cent over the year to October which is the sharpest fall since September 2009.
Their exports to the US have also declined by 3.6 per cent in the year to October 2011 – the sharpest drop since December 2009.
The bright spot is that their exports to China rose by 14.6 per cent in the year to October 2011 but are slowing. China understands it has to use fiscal policy to generate growth.
The reason for these trends is that fiscal policy is being constrained so deficits are not rising sufficiently to counter the flat private demand.
The economic technocrats better go back to square one – spending = income = output which drives employment. All their financial ratios are secondary to that truth.
That is enough for today!